Brrrr Investing Starting with Cash

12 Replies

When hearing discussions around BRRRR Investing, I never seem to hear many details on what options are available for purchasing the first unit. Would it make sense to pay cash for the first unit, then refi after acquiring a tenant? It seems like a traditional lender would be more inclined to do a cash out refi on a unit owned outright with a paying tenant. Thoughts?

Most new investors don't have even close to enough cash to buy a piece of real estate without borrowing. I know I sure didn't.

But to answer your question, yes it could make sense to do that if you have the cash. Don't forget you need the cash to do the renovations too.

You will save yourself a bunch of money using all of your own cash. Inversely, you maximize your risk. You can easily save a few thousand in holding costs and points by avoiding a HML.

Originally posted by @Nicholas Lohr :

Most new investors don't have even close to enough cash to buy a piece of real estate without borrowing. I know I sure didn't. 

But to answer your question, yes it could make sense to do that if you have the cash. Don't forget you need the cash to do the renovations too.


So I am thinking to go in with cash for purchase and repairs, get a tenant under lease, then go to the bank with solid numbers and pull my cash back out to do the same thing again. Definitely more risk, as stated by Frank but I have time on my side because I won't have a mortgage to pay initially. I can take my time repairing and vetting tenants without having to worry about carrying a mortgage. I have a partner that can put some cash in the pot, but we don't want to be cash poor either, which is one of the reasons that it may be better using other people's money. But as I stated initially, the plan would be to put a mortgage on the property after rather than using a mortgage to acquire the property.

Nicholas, how did you get started? How did you acquire your first property and how many do you own now? 

@Marlon Johnson I have done exactly what your describing. Cash purchase on the front end and fronted the rehab costs too. Once I leased it up and waited 6 months from purchase I took it to a bank and got all of the cash back and then some. Then you just keep rolling it into the next one.

If you aren't looking to take anything more than you paid for it out you can refi sooner. There are also threads on here about guys putting the rehab costs on the HUD so they can refi those out before 6 months too. Lots of possibilities out there.

@Marlon Johnson

My first purchase was a BRRRR. I bought with cash and self-funded the rehab. I closed on the purchase in April, and closed on the refi in June (once the rehab was done and tenant was in place).

Definitely more risk, but probably less expensive

Originally posted by @Matt P. :

@Marlon Johnson I have done exactly what your describing. Cash purchase on the front end and fronted the rehab costs too. Once I leased it up and waited 6 months from purchase I took it to a bank and got all of the cash back and then some. Then you just keep rolling it into the next one.

If you aren't looking to take anything more than you paid for it out you can refi sooner. There are also threads on here about guys putting the rehab costs on the HUD so they can refi those out before 6 months too. Lots of possibilities out there.

 Seems like it's easier that way, if you have the cash to do it. Definitely lots of possibilities and I am realizing that more the more people I listen to on the subject. Thanks for your help!  

Yes brrr loans require cash to buy the property. They won't qualify for a traditional mortgage due to the needed repairs. You buy in cash for cheap, rehab and build instant equity then get your cash back.

Originally posted by @Nicholas Lohr :

@Marlon Johnson my first was a duplex. Here is a link to a thread with the full story.  See middle of the page for my full description. https://www.biggerpockets.com/forums/67/topics/427862-questions-about-brrrrr-method

I have 14 now. (9 apartments, 2 houses, 2 townhouses and 1 convenience store) 

 When you say 9 apartments, do you mean individual units, like a condo units or do you mean apartment buildings? If you mean the former, what challenges have you encountered. A friend of mine that owns a few rentals strongly recommended against owning condo units for various reasons but I am realizing that everyone has their own niche. One will love something while another hates it. 

@Nicholas Lohr i checked out the link you posted explaining how your first BRRRR went and had a question. You stated after your refi the loan amount was $245k and your original loan amount was $155k. After you paid the $155k, you stated you were left with $90k to re-invest. With those number, didn't that still leave you with $90k left on the first property since the new loan amount after you refinanced was $245k? Or did paying the $155k originally borrowed settle the debt and now you owned the bone free-and-clear? Sorry if this is confusing. Just trying to understand the numbers as i am interested in the BRRRR method as well and new to it.

@Edward Callaway   I'm sorry I just read your questions twice and am having trouble understanding.  I hope this clears it up.  I had the original loan out of 155,000 and when I refinanced at an appraised value of 350,000 I got a new loan of 245,000.  That new loan was used to pay off the original 155,000 leaving me with 90,000. 

350,000 appraisal after rehab (known as "ARV")

bank loans 70% of 350,000 which is 245,000

245,000 - 155,000 = 90,000 

The 90,000 goes to the next deal.

@Marlon Johnson   No they are not all individual properties, they are grouped within 3 parcels.  2 houses on one parcel, 6 apartments on 2nd, and the convenience store, townhouses, and rest of apartments on a 3rd. These aren't "condo units" they are just regular apartments.  

6-plex, 4-plex, duplex etc.. is how they are referenced.  

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